There will be a change in priority sector lending norms

The proposed changes are expected to provide banks free capital to meet sector-specific PSL targets and lend to industrially vibrant sectors, boosting economic growth.

Reserve Bank of India (RBI) regulations require banks to allocate 40% of their Adjusted Net Bank Credit (ANBC) to priority sector, which includes agriculture, small and medium enterprises, exports and economically weaker groups such as small Farmers, micro enterprises are included. , and the deprived section.

The banks approached the finance ministry, requesting a change in PSL classification, according to one of the two people familiar with the development.

The ministry may now take up the matter with the RBI, and a decision on restructuring the PSL norms may be taken soon, the person said.

At present, deposits made in RIDF by banks and other such funds are not allowed to set off shortfalls in meeting PSL targets, and are not recognized as part of the banks’ risk in the respective PSL sub-categories. These placements, facilitated through institutions such as NABARD, SIDBI and MUDRA, are classified under ancillary services, lending to MSMEs under other finance and housing.

Once the changes are approved, the banks’ investment in the eligible funds as a result of the modifications, in line with the annual allocation, will be recognized as bank credit within the sub-categories of PSLs corresponding to the respective shortfall ratio for that particular year .

“The changes will give banks more flexibility to meet their PSL targets, where demand for credit is low in some sub-categories, or the bank has not been able to identify suitable classes for loans. Besides, it will free up more funds for further lending sectors which generate more profit for banks when a global recession is expected to further reduce credit flow,” said a top executive of a public sector bank. said on condition of anonymity.

Queries sent to the finance ministry, financial services secretary and RBI remained unanswered till the time of going to press.

According to a study, the top five industries driving loan growth for banks are large scale industries (around 20%), housing (around 15%), NBFCs (around 10%), trade (around 6%) and vehicle loans (around 4%). %) Are. ,

According to a report by NABARD, there has been an increase in PSL shortfall deposits. 2.52 trillion in March 2022 99,000 crores in March 2021.

Additionally, there has been an increase in trading of Priority Sector Lending Certificates (PSLCs) which can be used by banks to cover shortfalls in PSL targets and which are issued by those who meet their targets. According to RBI data, the trading volume of PSLC increased by 12.4%. 6.62 trillion by the end of FY22.

As per RBI’s bank credit report, the gross bank credit outstanding under PSL as on March 24 is 17.08 trillion for agriculture, 15.70 trillion for micro and small enterprises, 3.99 trillion for medium enterprises, 6.21 trillion for housing, 58,634 crore for education loan, 4,656 crore for renewable energy, 2,464 crore for social infrastructure, 15,696 crore for export credit, 59,659 crore for other sectors, and 14.41 trillion for weaker sections including PSLCs.

While credit to most PSL sectors has increased in FY23, export credit has declined and flows to social infrastructure have increased.

Updated: May 16, 2023, 01:01 AM IST